“America does not go abroad in search of monsters to destroy. She is well-wisher to the freedom and independence of all. She is the champion and vindicator only of her own.”
-- John Quincy Adams
A century ago, the British economist John Hobson wrote an essay that debunked the conventional wisdom that England’s imperial project was a profitable venture. Using facts and figures from officially published government statistics, he basically went about proving his thesis by using a cost-benefit analysis approach to determine the aggregate cost of maintaining British colonies. He then compared them to the aggregate profits that accrued to the British people and to certain sectors of the English economy. While certain colonies were profit centers, most of them generated losses. His conclusion was that, as a national project, the colonies were a financial drain on the government’s coffers and had a negative impact on the British economy. In strictly financial terms, Britain’s imperial project was a losing proposition that bled the nation’s coffers even if did benefit certain domestic financial interests and industries.
If Hobson was still around, he might have done us the favor of undertaking a similar review of America’s imperial venture in the Gulf. Is it a profitable enterprise? More precisely, was it a profitable venture that has now turned sour? Unfortunately Hobson is no longer with us, so all we can do is apply his techniques and perform our own cost-benefit analysis.
Exaggerating America’s Dependence on Saudi Oil
One of the enduring myths about America’s imperial adventures in the Gulf is that they serve to secure energy supplies that are vital to our national security and the health of the economy. Yet, a review of the Department of Energy’s own figures for 2004 reveals that the United States imports more oil from Canada than from Saudi Arabia. Mexico is our second major supplier and Saudi Arabia and Venezuela tie for third place. In fact, 37% of the twenty million barrels of oil we consume every day comes from domestic oil production. In comparison, petroleum from the Gulf -- including Saudi crude -- accounted for only 12% of our total oil consumption in 2004 and less than 5% of our total energy requirements.
In terms of total energy use, the figures are startling. In all, the United States consumed 99,000 trillion Btu of energy in 2004 -- with oil contributing 40,000 trillion of total consumption. For 60% of all energy requirements, we depend on nuclear energy, natural gas, coal and hydroelectric power. In contrast, the 1.5 million barrels of oil we import from Saudi Arabia every day satisfies only 3% of our daily energy fix and Saudi crude accounts for just 7% of America’s oil requirements. Again -- all these figures are calculated using the statistics provided by the Department of Energy.
This might come as a surprise, but America produces 70% of the energy we use right here in the United States. In fact, domestic energy supplies give the United States a comparative trade advantage against many industrialized countries like Japan, China, Italy, South Korea, Germany and India -- which are almost entirely dependent on imported oil and natural gas. If our per capita use of energy was equal to that of German consumers, the United States would have surplus energy supplies available to export to less fortunately endowed countries.
Another important point to keep in mind is that even if America didn’t purchase a single barrel of Gulf crude -- additional oil can be readily purchased from alternative producers. During the Arab oil embargo in 1973, the oil giants simply diverted non-Arab oil tankers to American ports. Since then, The United States has instituted a defensive policy of diversifying the sources of oil imports. Over half of our oil imports come from the Western Hemisphere. Combined with domestic oil production -- two out of every three barrels of oil consumed by the American market come from North and South America. Moreover, America’s strategic oil reserves act as an insurance policy to handle any temporary disruption of Middle Eastern oil.
In the event that the United States is ever excluded from having equal access to Gulf oil reserves, the region’s petroleum products would still make it to international markets. A case in point is Iranian oil and pre-invasion Iraqi oil. Officially, we didn’t buy oil from either country -- but they still exported their crude. It really doesn’t matter where oil supplies come from -- the only real factor that counts in oil pricing is aggregate global supply from all sources and aggregate global demand. One of the reasons for the recent spike in oil prices has nothing to do with access to supplies -- which continue to grow even though our invasion of Iraq has actually reduced the amount of oil coming out of Mesopotamian oil fields. As any oil trader will tell you, it is the demand for oil from emerging economic giants like China and India that has driven this market. In the case of China, imports rose 16% in 2004. Which begs the question: should we blockade oil to the Chinese market to alleviate pressures on aggregate supplies?
With the exception of oil exporters like Canada and Great Britain, the United States is far less dependent on Gulf oil than the vast majority of industrialized nations. Europe, Japan, China and India are infinitely more vulnerable to any disruption in the flow from the Gulf region. How then is one to explain the aversion of these economic giants to invading Middle Eastern countries? Is it likely that America’s bloody exploits in the region are altruistic missions to guarantee an uninterrupted flow of oil supplies to competitors like China, Japan, France and Germany?
If one could pour all of America’s annual energy consumption into twenty bottles and line them up against a wall, only one of those bottles would contain the oil we import from the Gulf. It should also be noted that we don’t get that bottle for free -- we pay the same market price as everybody else. So, why spend so much in American blood and treasure for that one single bottle -- instead of trying to get by on the energy content of the other nineteen bottles?
In terms of securing access to vital energy resources -- there is no compelling argument to justify America’s military adventures in the Gulf. A total disruption of Middle Eastern oil would only have marginal and temporary consequences for consumers. A national conservation program to improve energy efficiencies by five or six per cent would eliminate any potential damage to the economic health of the nation. Such an effort would not even require any technological breakthroughs. Using hybrid technology -- cars that run on a combination of oil and batteries are already on the market and they get around 50 miles per gallon. A successful energy independence program doesn’t depend on rocket science. It just requires a national will to do without one of the twenty bottles of energy we devour every day -- the bottle that comes from the Gulf region.
So, if direct military intervention in the Gulf isn’t about securing “vital” energy supplies, how exactly does the United States expect to benefit from this increasingly costly intervention in the region?
When America’s Role in the Gulf Was Strictly Business
At this point, it helps to review a little history about the birth and origin of the American imperial project in the Gulf. To begin with, it didn’t start out as quest for empire. It began as a business venture and only evolved into an imperial project at the hands of policy makers in Washington.
Until the early ‘50s, American policy in the region had one single objective -- to assure equitable treatment of American oil companies against their British, Dutch and French rivals. Because the whole region was under British hegemony, the basic mission of the State Department -- which didn’t even bother to set up diplomatic missions in the Gulf countries -- was to twist arms in London. The only beneficiaries of all the arm-twisting were the American oil majors that were vying for oil concessions in Saudi Arabia, Iraq, Kuwait and Bahrain. (Iranian oil was firmly locked up by the Anglo-Iranian Oil Company until the CIA restored the Shah to power in 1953).
In The Prize -- a must read for those interested in the history of the oil industry -– Daniel Yergin recounts the exploits of Andrew Mellon, who served as American Ambassador to Britain in the early thirties. Ambassador Mellon vigorously intervened with the British government to press the case of Gulf Oil and to help close a deal on a major oil concession with the Emir of Kuwait. At the time, the tiny emirate was a British protectorate. British oil interests resisted the Gulf Oil project because they wanted to reserve for themselves the exclusive right to explore and develop Kuwaiti oil fields. But the British government finally relented and caved in to American pressure. Gulf Oil was given a green light to wrap up the deal. The consummation of the deal can be credited to the tireless efforts of Andrew Mellon. His enthusiasm might have had something to do with the fact that his family owned and managed Gulf Oil. Back then, in the early thirties, the business of America was only business -- especially in the Middle East. It was quite acceptable behavior for an American oil tycoon to press the case of his own family’s company while he was acting as our nation’s envoy to Great Britain.
So, until the ‘50s, United States involvement in the region was pretty much confined to supporting American oil majors in their business quarrels with the British government and the Anglo-Persian Oil Company. But the strategic value of oil in the military campaigns of World War II did not escape the notice of the Pentagon. Although the newly discovered oil fields in the Gulf had been capped during the war years and played no role in the war effort, their strategic value in the post war era became a focus of policy makers in Washington.
Gulf Oil and the Cold War
When the United States emerged triumphant from World II, American oil fields were still pumping two thirds of all international oil supplies. American crude had played a decisive role in winning the war against the oil starved Axis powers. The United States remained a net exporter of oil and petroleum products until the late forties. But the lessons of the war and the emergence of the Soviet Union as a strategic rival compelled the American government to take a new look at Gulf oil reserves. Although American oil production satisfied domestic oil demand, the United States now had a strategic interest in denying Gulf oil to the Russians and insuring a cheap and reliable supply of crude to its European and Asian allies.
As the sun set on the British Empire, the United States maneuvered to establish itself as the dominant power in the Gulf. Roosevelt and Truman initiated the “special relationship” with Saudi Arabia. Even before the war ended, Roosevelt had already informed the British that Saudi oil was “ours”. By 1950, Truman was promising King Ibn Saud that, “No threat to your Kingdom could occur which would not be a matter of immediate concern to the United States.”
A Diminished Role for the Oil Industry
The sheer size of Gulf oil reserves was also cause for active, if indirect, American intervention in the region. Geologists considered oil fields in the region to be “the greatest single prize in all history.” One of the major concerns of American policy makers in the fifties and sixties was the extremely low cost of producing a barrel of Gulf crude. There was genuine alarm that cheap oil from the region would swamp international markets to the detriment of domestic American production.
At the time, American and British oil monopolies determined the level of Gulf oil production -- and they were, of course, the very same companies that controlled the flow of Texas crude. So, the problem of rationing production quotas was initially left to the oil giants. When that didn’t work, the independent oil companies who had no stake in the Middle East forced the government to impose import tariffs and then voluntary quotas. Finally in 1959, the Eisenhower administration was compelled to declare mandatory quotas. Imports were initially limited to 9% of total consumption and most of the quota was satisfied by imports from the Western Hemisphere.
The companies that made up the American “oil lobby” were not monolithic. In fact they were not a single lobby. In one corner, there were the oil majors who had foreign concessions. But there was also a very strong lobby of independent oil companies that only produced oil in Texas or Louisiana. This second lobby was very resistant to any competition from “foreign oil.”
The Oil giants had an even bigger headache in the Gulf region. With new restrictions to selling their product in the American market, they were obliged to limit the amount of oil being produced in the Gulf. Which meant they also had to ration production between Saudi Arabia, Kuwait and Iran. The three countries were always bickering for a bigger slice of the production quotas enforced by American oil companies.
On the one hand, in the fifties and sixties, the oil majors were actually powerful enough to have their own foreign policy and impose production quotas and even sanctions against Gulf oil producers. When Mossadegh’s government nationalized the Anglo-Iranian Oil Company in 1951 -- American and British oil monopolies embargoed Iranian oil and increased production in Kuwait and Saudi Arabia. The embargo was successful enough to topple Mossadegh and restore the Shah to his throne.
The oil industry’s foreign policy often clashed with the national interest priorities of the United States, which was to support anti-Soviet regimes, no matter how odious. The United States spared no effort to prop up the absolute monarchies in the region -- especially the Shah and the Al Saud clans. They were considered an integral part of the ‘free world’ and stalwart anti-Communist allies. Cold War logic dictated the government’s policy of insuring an interrupted flow of cheap oil to the “free world” -- especially its European allies.
American foreign policy in the region was no longer specifically tailored to align with their oil industry’s agenda. When the governments in the region flexed their sovereign muscles to get a bigger slice of the oil pie, Washington took a fairly neutral stand. As a consequence, the terms of the oil concessions were regularly re-negotiated in favor of the region’s governments.
By the mid-seventies, it was OPEC that determined the level of production -- not the oil majors. The oil majors were reduced to playing a strictly professional role in the discovery, development, transportation, processing and marketing of Gulf crude. And their contractual arrangements with the Gulf monarchs were very similar to the agreements they reached with Venezuela, Indonesia and other oil-exporting companies.
From the end of the war till the fall of the Shah, American policy in the region was to reconcile the cold war agenda, corporate oil interests and the increasing leverage of the oil producing nations -- which gradually gained sovereign control over their oil resources. While the powerful oil lobby in Washington continued to retain considerable influence with American policy makers, their corporate concerns where no longer the only factor that determined the shape of American foreign policy in the region. The oil majors chief concern was to protect their oil concessions. But the US government was more concerned with taking full strategic advantage of “the greatest prize in all history.” It expanded its influence in the region with an eye to preventing the oil plantations from falling in the hands of native leftists and nationalists who might be prone to make alliances with the Soviet Union.
American oil majors became very adroit at rolling with the punches and accommodating political realities in the Gulf. From the early ‘30s to 1991, they managed to survive British hegemony, the Cold War, revolutions, four Arab-Israeli wars, the unpredictable twists and turns of Pan-Arab nationalism, embargoes and OPEC. They had adapted to the changing terms of their oil concession agreements, which were constantly being amended in favor of the oil producing nations. The oil majors, known as the seven sisters, made it through periods of excess supply and ruinous price wars and other periods of volatile prices driven by excess demand. The secret to their endurance was that they had real competitive advantages in terms of technology, management, marketing, transportation, distribution channels and processing. The Gulf region needed them as much as they needed access to Gulf oil reserves. Throughout this six-decade odyssey, the oil giants never once had cause to call in the Marines.
From Proxy Wars to Direct Military Intervention
Even after the Iranian revolution, the United States refrained from direct military intervention in the region. To contain Soviet ambitions and prop up the absolute monarchies that controlled the oil plantations, the United States had come to depend on regional allies. The Shah of Iran was supplied with a state of the art arsenal to ward off Soviet threats, challenge Pan-Arab nationalists and confront his own domestic leftist and fundamentalist foes. Throughout the sixties, he allowed secessionist Iraqi Kurds to establish camps in Iran and provided them with arms to fight a civil war against the Baathist regime in Baghdad. He also dispatched his army to Oman to do battle with leftist insurgents. He was the designated regional cop. True enough, he was a despot and depended on the notorious Savak to torture and torment his domestic adversaries - but he was our SOB.
Once Khomeini came into power, America went searching for another regional proxy. Saddam Hussein was nominated to replace the Shah as America’s bouncer in the region. It wasn’t long before he invaded Iran with active encouragement from Washington. During that eight-year conflict -- which resulted in a million fatalities -- Saddam developed and used chemical weapons against both Iranians and Kurds. At the time he deployed these illegal weapons -- American military advisers were stationed in Iraq to provide battlefield intelligence to Iraqi forces. The dispatch of American advisers to assist Saddam’s war effort can be considered the first episode of direct American military intervention in the Gulf region.
By the time the Iran-Iraq war ended, Khomeini was effectively contained and the Soviet Union was on the verge of collapse. The cold war rationale of confronting Soviet mischief in the Gulf had disappeared. But there was one problem. Due to American and European arms sales, Saddam emerged from the war with a strong and battle-tested army. The only thing that restrained his ambitions was the 300 billion-dollar debt that Iraq had piled up during the war. A considerable portion of that money was borrowed from his Gulf Arab “brothers”. He wanted the loans forgiven or rescheduled on more favorable terms. But the United States, Kuwait and Saudi Arabia wanted to leverage his ruinous debt to contain his adventurous spirit. When they refused to reschedule the loans, Saddam went off the wall and invaded Kuwait.
The United States responded to this alarming development by embarking on its first major direct military intervention in the region. They destroyed the Iraqi Army and evicted it from Kuwait, restoring the emir to his throne as the absolute monarch of his realm. After the war, they forced Saddam Hussein to give up his chemical arsenal and imposed genocidal sanctions that cost the lives of another 500,000 Iraqis. No fly zones were imposed on Iraq, the Kurds were allowed to set up their own state within a state and permanent American bases were built in Saudi Arabia, Kuwait and Bahrain.
The war to “liberate Kuwait” was virtually cost free in terms of dollars and cents. The Al Sabah and Al Saudi ruling clans were more than happy to pick up the $60 billion tab. The permanent American bases established in the region were also financed by the Gulf monarchies.
By 1991, America had neutralized the threats from both Iraq and Iran. With the fall of the Berlin wall, there was no longer any concern about Soviet adventurism in the region. The United States had gained direct strategic control of all Gulf oil resources at very minimal cost. Washington policy makers were delighted at how efficiently their forces had managed to conduct their first mission. Skeptics had warned of “another Vietnam” and unpredictable reactions from the long dormant “Arab Street.” But nothing happened -- at least on the surface. The majority of Arab countries -- including Egypt and Syria – had no qualms about sending military forces to help oust Saddam from Kuwait. Sure, there were a few angry student demonstrations in Cairo, Amman and Beirut. Other than that, all was quiet on the eastern front.
Justifying Direct Military Intervention in Kuwait
When James Baker was asked to rationalize the war effort he gave a one-word answer “jobs” -- which in American parlance translates into “money”. If he mentioned anything about “spreading our democratic values” -- it was inaudible. The war to ‘liberate Kuwait’ was marketed as a venture to uphold international law and set an example to other nations who might be tempted to conquering their neighbors.
But America’s record in the region did not demonstrate any particular aversion to one neighbor invading another. In 1967, the United States gave the green light for the Israeli invasion of Egypt’s Sinai Peninsula, the Syrian Golan Heights, Jerusalem and the West Bank of Jordan. When Israel proceeded to illegally settle the occupied territories -- the United States provided generous aid to finance a systematic campaign of ethnic cleansing aimed at dispossessing the Palestinians from their native lands.
In 1976, the United States gave its blessing to Syria’s intervention in Lebanon. As a reward for participating in the Gulf war, Damascus was allowed to consolidate its position in Lebanon. Greece and Turkey invaded and then partitioned Cyprus in 1974. In 1978 and again in 1982, Israel was given more green lights to invade Lebanon. Outside the region, America turned a blind eye to Indonesia’s invasion of East Timor in 1975. When Iraq invaded Iran in 1980, it was with American blessing and guidance. In a recent interview, Hosny Mubarak revealed that Reagan dispatched Admiral Poindexter to Cairo to prod the Egyptian leader to invade Libya. Mubarak declined the offer.
So, it is safe to conclude that America has never been a consistent fan of the United Nations or international law. The power brokers in Washington never had any allergies against one little country invading another little country. When the United States ‘liberated Kuwait’, Bush the Elder waxed eloquent about the sanctity of UN resolutions and the need to create a “New World Order.” A decade later, his son invaded Iraq even after the UN Security Council refused to uphold the legitimacy of the venture. The American attitude towards international law is that it can be convenient or inconvenient but it should never be binding.
Faulty Risk Analysis Leads to the 9/11 Catastrophe
The policy makers in Washington were aware that America’s direct military intervention in the region would involve a certain amount of risk. The decision to establish permanent bases in Saudi Arabia and Kuwait after the war was especially provocative. In the decade that followed the “liberation” of Kuwait, American troops were attacked in El Khobar and the Cole was nearly sunk. There were devastating suicide bomb attacks against American embassies in Kenya and Tanzania. Aside from generating a little media sensation, the attacks were considered within the bounds of the initial cost-benefit analysis for the American imperial project in the Gulf.
A decade after the first Gulf war, Al Qaeda terrorists assaulted the World Trade Center and the Pentagon. The devastation and mayhem went way beyond the worst-case scenario contemplated by the policy wizards in Washington. In their darkest nightmares, they never dreamed they were taking a risk of this magnitude. They later attributed their miscalculations to “a failure of the imagination.”
Traumatized Americans wanted answers as to why we were so viciously attacked. In the first few days after the 9/11 terrorist attack, many individuals and a few journalists focused in on the American bases in Saudi Arabia, the genocidal sanctions against Iraq and the repression of the Palestinians. After all, fifteen of the suicidal assailants were Saudi nationals.
Within a week, the Bush administration came up with a much simpler answer. Our hegemony over the region and the Saudi bases had nothing to do with provoking the fanatics who attacked New York and Washington. We had apparently been attacked because of “our way of life and our values.” We were targeted because of who we were -- not as a result of our provocative foreign policy. The mainstream mass media -- notably CNN and FOX -- led the charge against those who sought to make sense of the assault. The fourth estate got considerable assistance from the fifth estate -- a new force in American politics made up of a handful of self-appointed “experts” who operate the neo-con “think tanks” -- which are nothing more than fronts for the Israeli lobby.
The days and weeks after 9/11 were a lost opportunity to square with the American people. Maybe direct and massive military intervention in the region was more costly than we had originally anticipated. Building permanent bases in Saudi Arabia after liberating Kuwait was not only provocative and arrogant, but also unnecessary. When asked about the cruelty of the genocidal sanctions against Iraq, Madeline Albright had insisted that they were “worth it.” Bush’s new policy towards the Israeli/Palestinian conflict was to “let them bleed.” Maybe our foreign policy architects had made a big mistake and we should rethink our strategy towards the region.
Against a backdrop of stupefying human and material losses, the time had come for some adults to stand up and take responsibility for a disastrous foreign policy. Instead, we were exposed to the first barrage of a propaganda campaign to convince us that we were attacked because of our “values”. The lies and evasions that poured out of Washington after 9/11 were just the beginning of what has to be the most successful propaganda campaign in American history. The media giants and the Bush administration joined forces in a massive assault on our collective common sense. Dissident voices were silenced, maligned and accused of treason. An angry traumatized nation was deprived of an opportunity to take a closer look at our imperial project in the Gulf and assess the real cost of our disastrous intervention in the region.
Responding to 9/11 by invading Iraq
After invading Afghanistan to dismantle Bin Laden’s bases -- the Bush administration turned its attention to Saddam Hussein. He was a secular Baathist and a vicious dictator. But he was also a contained threat who had been denuded of his chemical and biological arsenals. His losses in Kuwait and a decade of sanctions had greatly diminished his army’s conventional capabilities. Anybody remotely familiar with the Middle East knew that Saddam’s alleged ties to the 9/11 atrocity was sophomoric hype.
Islamic fundamentalists disdained Saddam and his Baath party. Moreover, The United Nations had assured the administration that Iraq no longer possessed WMDs. But none of that mattered because Wolfowitz, the architect of the war, determined that “Iraq was doable.” He had actually recommended that Iraq be invaded before Afghanistan. In a rare moment of honesty, he later revealed that the WMD scam was used because it was a “bureaucratic reason everybody could agree on.”
Before long, intelligence was manufactured to back up the case for war against Iraq. There was no intelligence failure. An outfit called the Office of Special Plans was set up in the Pentagon to manufacture and disseminate any story that would rally the public behind the war effort. We can all thank CNN, FOX and their print cousins for collaborating with the government in giving credence to this neo-con engineered farce. The media giants were not only driven by jingoism. Many of them salivated at the prospect of cheaply produced real time footage from the battlefront. Imbedded journalists had discovered a new media frontier -- war as reality TV -- a great circus act to draw in the crowds.
Invading Iraq to Close the Saudi Bases
A year after the war, Republican Congressman Christopher Shays, gave away the real reason for the war in a CNN interview. In an attempt to deflect a question over the non-existent WMDs, Shays gave the answer. “We knew we needed to get out of Saudi Arabia. That was one of the contentions of Osama bin Laden.” The Iraq war was also an excellent way to remove the sanctions -- another Bin Laden grievance and another by-product of the war to “Liberate Kuwait.” In effect, we had ignited a second Gulf war to remove the Saudi bases that we established after our first major military intervention in the region. One Gulf war had given birth to another more deadly encounter.
Congressman Shays, a strong advocate of the war and a favorite with the Bush administration, was right on the money. Two days before Bush declared an end to “major combat operations in Iraq”; Rumsfeld landed in Saudi Arabia to make a low-key announcement that the Prince Sultan Air Base would be closed. It wasn’t long before the sanctions were removed. Moreover, the build-up to the war had allowed the United States to build a new base in Qatar to replace the Saudi facility.
Manufacturing Demons Abroad
Terrorism is very much a political phenomenon. Much like tsunamis, it doesn’t rise out of thin air. The recent natural disaster in Asia was caused by friction between the India and Burma Tectonic plates. Likewise, Al Qaeda’s rank and file originated from a part of the world where the United States has engaged in aggressive military intervention on a massive scale.
The Al Qaeda phenomenon is a particularly lethal and extremist kind of terrorism. Gone are the days when hijackers would divert a plane to Algiers or Havana, issue a list of demands, negotiate and then set the passengers free. The 19 suicidal terrorists who attacked the WTC and the Pentagon let it be known that they had certain grievances. The presence of American bases in Saudi Arabia, the genocidal sanctions and the brutal repression of the Palestinians enraged them. But unlike an earlier generation of hijackers, they had no intention of negotiating or even landing their planes. They were just hell bent on taking vengeance against innocent Americans.
One can argue about whether American foreign policy in the region is principled. Some might take the position that even if our policies were unprincipled, they served the national interest. But it is ingenuous to take the position that our adventures in the Gulf region did not enrage the assailants. Condemning the slaughter of innocents who had nothing to do with authoring our foreign policy does not preclude taking a rational look at the origins of Al Qaeda.
Al Qaeda never had cause to attack Germany -- where the 9/11 conspiracy was hatched. The notion that we were assaulted because of “our way of life” does not square with the cultural reality that the citizens of Munich and Berlin enjoy a way of life very similar to our own. Canada and Sweden were not attacked. But we were -- because Al Qaeda had grievances against our foreign policy and our military presence in their countries.
Despite the attempts to divert attention from the foreign policy environment that manufactures demons abroad, Washington decision-makers knew they had to address the grievances of Al Qaeda after 9/11. They began by dismantling the Saudi bases because, as Congressman Shays explained, “We knew we needed to get out of Saudi Arabia.”
In a way, Tsunamis are more terrifying than Al Qaeda because there is precious little that can be done to prevent them. But terrorism is a man made disaster. In Afghanistan, the “war on terrorism” diminished the power of Bin Laden to cause havoc. But it has given birth to a new outbreak of terror attacks by suicide bombers -- who shed blood on the streets of Baghdad almost every day. True enough, the victims are not usually Americans -- but they are still victims of the same kind of individuals who attacked New York and Washington on 9/11. Worldwide terrorist attacks have actually increased since the invasion of Iraq.
The establishment of Saudi bases and the enforcement of the murderous sanctions were policies designed to implement our imperial project in the Gulf. Until 9/11, they appeared to be “low cost -- high reward” elements of a strategy to insure American hegemony in the oil rich region. After all, the Saudis and Kuwaitis were picking up the tab for the American garrisons that enforced the sanctions and contained Saddam Hussein.
After 9/11, the Bush administration could have come clean with the American people and admitted that the Saudi bases should be closed and the sanctions had to be lifted. Even before the terror attacks, Colin Powell was actively looking for a formula to enforce “intelligent sanctions” to alleviate the suffering caused by the genocidal sanctions.
George Bush could have explained to the public that the invasion of Iraq was motivated by the need to take “corrective measures” to salvage an imperial project gone sour. But the power brokers in Washington had no intention of giving up on American hegemony in the Gulf. Neither were they inclined to conduct a public audit of the real costs of our direct intervention in the region. A cost-benefit analysis of our real or imagined “national interests” in the region might have caused most Americans to tar and feather the authors of our foreign policy. So, we ended up invading Iraq on false pretexts and dug a deeper hole that has only increased the cost of our unnecessary and unprofitable presence in the region.
Debunking the “New New Lie” for Invading Iraq
The Bush administration never anticipated Iraqi resistance -- much less a full-blown insurgency. The neo-con architects of the war had promised a “cakewalk”. They expected a replay of the Kuwaiti project in 1991. When things turned sour, they went into denial. With no WMDs and no Iraqi links to the 9/11 attacks, new questions arose about the cause of the war. Again, Bush had a simple answer. We fought the war to spread the blessings of liberty and democracy to the Middle East. These days, Bush apologists have been raving about how democracy is spreading like wild fire in the Middle East as a direct result of our intervention.
Bush’s “new new lie” for invading Iraq to spread democracy came from an unlikely source. By his own admission, the president was inspired by his pal Natan Sharansky, a radical right wing extremist and a passionate advocate of the Israeli settler movement. Sharansky just resigned his cabinet seat to protest Sharon’s plan to finally withdraw from Gaza. Apparently extending freedom and liberty to the Palestinians -- on 2% of their ancestral lands and on Sharon’s miserly terms -- was too much for the real author of the “Bush Sharansky” doctrine. So much for the “moral clarity” of Bush’s highest guru.
I was recently in Lebanon and had an opportunity to discuss this notion with a group of young Lebanese intellectuals. One of them, a lecturer at the American University of Beirut, volunteered that when the Iraq came up in the nightly news, he would simply flip the channel. He just wasn’t interested. His companions, all members of the opposition, agreed that they had more pressing strictly Lebanese issues on their minds. It wasn’t that they were indifferent to the suffering of the Iraqi people -- but they hardly needed the invasion to teach them “democratic values.”
Iraqi democracy has a long way to go before it rises to the level of Lebanon’s long if imperfect democratic tradition. In fact, many Lebanese -- who took great personal risk in joining the protests in Beirut -- resent Bush for taking credit for their historic and heroic uprising. The hundreds of thousands of Lebanese who took to the streets of Beirut did so out of outrage at the assassination of Rafiq El Hariri. For Bush, Lebanon was a gravy train he could hop to escape the quagmire in the Gulf. If there is foreign leader who deserves partial credit for restoring Lebanese sovereignty and independence -- it is Chirac of France -- not Bush of Baghdad.
Watching mainstream journalists ape the “Bush Sharansky” doctrine is at once revolting and amusing. Take Egypt, where Mubarak is entertaining the idea of doing away with rubber stamp referendums in favor of direct elections with multiple candidates. It’s still only a proposal to amend the constitution and the country continues to be ruled under draconian emergency laws. Security forces regularly disband demonstrators and arrest their leaders.
As for the mockery of the recent municipal elections staged in Saudi Arabia -- only males were allowed to vote for half the seats. The royal family will appoint the remaining council seats. So, even when it comes to picking up garbage and issuing building permits -- the Saudi ruling family is not about to relinquish any significant amount of power.
If we had wanted to promote democracy in the “Greater Middle East,” we had fifteen years to convince the Al Sabah clan in Kuwait to get with the program. The rubber stamp Kuwaiti assembly just voted to continue denying women the right to vote in sham elections. Three months after Iraqi elections, the results are still not clear and an “interim” cabinet -- charged mainly with writing a constitution -- has just been formed. But it seems clear that Iranian backed fundamentalists will shape the future of post-Saddam Iraq.
Invading Iraq for the War Party
Pro-Israeli lobbies and think tanks and their many allies in the media clearly factor prominently in shaping American policies in the Middle East. Any chaos in the region allows Israel to proceed with its expansionist plans and diverts attention from the systematic repression of the Palestinians.
But the Israeli lobby’s main leverage comes from its ability to sway public opinion with mass media campaigns to market foreign policy agendas that favor Israel. While it helps to have the Israeli lobby and the neo-con operatives on your side in any policy argument -- the lobby’s legendary political clout in Washington is not enough to launch a war in the Gulf. Israel’s “amen corner” played a major role in marketing the war and manufacturing deliberately misleading intelligence. But the United States did not invade Iraq simply to fulfill Ariel Sharon’s real estate fantasies. When it comes to the big picture, many American officials are completely indifferent as to who should gain possession of a few hundred square miles in the Holy Land.
Much has also been made of the right wing bigots of the Judeo-Christian identity movement and their agenda to hasten the coming of Armageddon by igniting the already volatile Middle East. The Christian Right is definitely a powerful constituency but when it comes to their foreign policy clout -- they are just useful idiots easily manipulated by cynical policy makers. Their role in this farce is to drum up a chorus to engage in a well orchestrated “culture clash” with the Islamic fundamentalists in the region. Sure enough, paranoids in the Arab world are convinced that the United States has embarked on a program to destroy Islam -- as if Islam was some fragile belief system. Al Arabia and El Jezzira, both financed by Gulf royal families, have spent the last three years discussing nothing but cultural imperialism and the “sinister” American initiative to spread democracy to the region. In the process, six decades of American intrigue in the Gulf has been reduced to some bizarre inter-clerical dispute.
This whole “culture clash” frenzy is a very convenient diversionary tactic to avoid a serious debate on a very simple question. Why do we even have an American imperial project in the Gulf?
Constituencies for War
The Israeli Lobby and the Christian right were not the only domestic constituencies that supported the invasion of Iraq. An unhealthy minority of Americans are prone to support any military intervention abroad -- regardless of the cause. You can take their temperature any day of the week and it always registers “war fever.”
The military industrial complex is yet another constituency that is willing to engage in any foreign entanglement the government can cook up. Iraq may not be a good war, but it’s the only war we have. War profiteers, like Halliburton, always stand prepared to support any war, any place, any time and for any reason
Every American generation has its moments on foreign battlefields. Some call it tradition -- others consider it a bad habit. The warmongers among us never cease appreciating “the smell of napalm in the morning.” When Thomas Friedman opined that, “I have no problem with a war for oil,” he certainly expected a lot of Americans would share his sentiments. Friedman, a former energy analyst for the New York Times, should have known that the war was not about securing America’s “vital” energy needs. As a master propagandist -- he was just making an appeal to the jingoists who would just as soon go to war to secure our “vital access” to Honduran bananas.
In the hysteria that preceded the invasion of Iraq, Michael Ledeen, a fellow at the American Enterprise Institute and a leading neo-conservative, made a statement that outraged some -- but appealed to those who find war to be an indispensable rite of passage. Ledeen observed that, “every now and again the United States has to pick up a crappy little country and throw it against a wall just to prove we are serious.” He might have been crass -- but his sentiments reflected the views of a very real and a very significant American constituency.
Of course, the mass media has a long tradition of fanning the flames of war -- because nothing entertains the crowds like the “shock and awe” of seeing a major foreign city go up in flames. With new and improved “real time” technological capabilities, CNN’s embedded journalists can now take their viewers to the front lines for a “reality TV” experience in Tora Bora and Fallujah. While waiting anxiously for the war in Iraq to begin -- as scheduled -- Aaron “arson” Brown of CNN rhapsodized about what a “perfect moment” it was for journalism.
Judith Miller of the New York Times played a vital role in the “intelligence failure” scam. America’s “doctor germ” was a major conduit for “leaking” the pulp fiction produced by the Office of Special Plans. A constant stream of propaganda was unleashed on the public from “reliable intelligence sources” and “Pentagon insiders who declined to be identified.”
The Fifth estate made up of a handful of Washington think tanks supplied a small army of “experts” who set up permanent camps in the studios of CNN and FOX. Richard Perle was a permanent fixture on prime time TV. And The American Enterprise Institute, a front for the Israeli lobby, substituted for the State Department.
No doubt, certain constituencies in America support the invasion of Iraq just because it’s the only war we have. But it would be preposterous to argue that our government staged two major military interventions in the Gulf for the purpose of entertaining those Americans who want to sniff some napalm while imbibing their morning coffee. We went to war for other reasons.
Altruism was not one of those reasons. Many of the young marines and soldiers who made the ultimate sacrifice in Iraq honestly believed that Saddam Hussein was the man behind the 9/11 catastrophe. A significant minority of Americans continue to believe that Iraq had weapons of mass destruction and that Baghdad was about to Fed Express them to terrorists. Many progressives and liberals have been taken in by the latest justification for the war. For who amongst us would not take a stand for liberty? Go sell that line in Fallujah where “we destroyed the city so they could vote.” Since the Civil War, the only American war ever fought for altruism was World War II -- and we didn’t bother to fight it until after the Japanese attacked Pearl Harbor.
So, Where Does that Leave Us?
Hopefully, the above analysis discounts many of the usual reasons given to justify or explain our military intervention in the Gulf.
A brief summary is in order. We certainly didn’t go to war to secure oil from a region that supplies only 5% of our total annual energy requirements. It would make just as much sense to launch a war against China to force the emerging Asian giant to curb its growing demand for crude. The interests of the oil majors did not require direct military intervention. Even during the Cold War and after the fall of the Shah, American oil companies managed to do just fine without the flexing of American military muscle. As we have seen, the project to contain Khomeini was contracted out to Saddam.
We certainly didn’t invade Iraq to destroy non-existent WMDs. We knew Saddam had no links to Al Qaeda. International law only matters when America feels like it. The John Bolton crowd does not go to war to uphold the integrity of United Nations resolutions. Spreading democracy in the Middle East has never been an American priority and is just the latest public relations scam by an administration desperate to justify the cost in blood and treasure of their quagmire in the Gulf.
War profiteers, jingoists and Armageddon worshipers and even a few altruistic souls joined the march to war. The Israeli lobby played a key the role of cheerleaders for the invasion -- by leveraging their legendary media muscle and deploying their think tanks in Washington. And the mass media had no qualms about beating the drums for a “war on terror.”
But none of these narrow constituencies, alone or combined, had a compelling foreign policy agenda that rose to the level of a “vital national interest.” In terms of national security and our economic interests, our strategic priorities in the Gulf have not changed. Our hegemony over the region is designed to protect the ruling monarchies -- especially the house of Al Saud. And that is why we went to war.
Protecting the House of Al Saud
The United States, Saudi Arabia and other Gulf monarchies have been joined at the hip since the Cold War. The nature of our strategic partnership has evolved from a nice place do oil business, to a cold war ally to an essential economic asset. During the last two decades -- the Gulf despots have endeared themselves to the United States government by providing America with an incredible economic advantage -- a virtual El Dorado.
The relationship is actually pretty straightforward. The Al Saud and Al Sabah clans price and sell their oil in dollars. They then transfer a healthy portion of their oil revenues to American capital markets. Both Saudi Arabia and Kuwait are also expected to use their vast excess capacity to discipline other OPEC countries. In return, the United States provides them with military muscle against all comers -- both foreign and domestic. That is the sum total of our imperial project in the Gulf.
When Prince Saud Al Faisal, the foreign minister of Saudi Arabia, recently commented that Saudi-American relations were “back to normal” -- he meant that the above mentioned arrangements were still in force. Faisal made his statement after the meeting between Crown Prince Abdullah and President Bush in Crawford. What exactly is our ‘normal’ relationship with the Kingdom of Oil?
Saudi Arabia is No Longer a “Swing Producer”
The decade that followed the “Liberation of Kuwait” saw a decline in oil prices, as the Saudis and Kuwaitis used their excess capacity to act as enforcers and reign in OPEC by flooding the market with cheap Gulf crude. By 1998, oil was trading as low as ten dollars a barrel.
From 2002 to 2005, due to increased demand by emerging economic giants like China and India, global oil demand went from 78 million barrels a day up to 84 million barrels a day -- a six million barrel increase. These days, every OPEC country is pumping oil at near full capacity and Saudi Arabia is no longer capable of acting as a “swing producer.” In fact, if current market conditions prevail, OPEC will become irrelevant.
The days of major oil discoveries are behind us. Newly discovered oil reserves are not keeping up with the current rate of depletion. In fact, there is real concern in oil circles that previously reported reserves were greatly exaggerated. Colin Campbell, a founder of the London-based Oil Depletion Analysis Center notes that, “The estimates for the OPEC countries were systematically exaggerated in the late 1980s to win a greater slice of the allocation cake. Middle East official reserves jumped 43% in just three years despite no new major finds.”
The logic of inflating reserves allowed the Saudis and Kuwaitis to increase their share of OPEC quotas. The whole idea behind OPEC was to allocate production quotas between oil exporting countries -- to assure a reasonable and stable price for their oil products. If they all pumped at full capacity -- they would all lose. But they all cheated and sold more than their quotas. And they all exaggerated their reserves to land a higher production quota. Now, they don’t need quotas and they don’t need to cheat. These days, all OPEC can do is give price guidance and promise to try to find some new oil fields.
Part of the rationale for our imperial project in the Gulf was to get Saudi Arabia to leverage its excess capacity to tame the price of oil and neutralize the power of OPEC. At the current rate of increased consumption, we would have to discover another Saudi Arabia every ten years just to keep up with demand. Given current market conditions, OPEC is an obsolete organization. Who needs cartels or production quotas when there is a buyer willing to pay a premium price for every marginal barrel? And what is the value of having a “swing producer” when there is virtually no excess global capacity? The simple truth is that the Saudis have no excess capacity to swing and neither does anyone else.
Was keeping OPEC on a short leash a sufficient reason to go to war in 1991? Did it rise to a level of a “national interest”? Did it justify engaging in the largest military intervention since Vietnam?
The answers to these questions really depend on an individual’s moral values. Thomas Friedman say “yes” and more decent people would say “no”. In any case, these questions are not of immediate concern. What matters now is that OPEC is no longer a viable operation and does not engage in setting production quotas. So, even if the Saudis promise to continue acting out the role of a “swing producer” -- they can’t deliver. So, the OPEC rationale is ancient history and can no longer qualify as a “national interest” worthy of military intervention.
The Greatest Money Laundering Racket in Human History
The massive increase in oil prices engineered by OPEC after the Arab oil embargo in 1973 was a major turning point for American-Saudi relationship. The record shows that Saudi Arabia always played the role of the moderate in OPEC councils to reign in Venezuela, Iran and Algeria and keep prices “reasonable”. Even so, prices continued to rise. Massive amounts of revenues were pumped into the treasuries of OPEC nations in an unprecedented transfer of wealth from oil consuming nations to oil exporting nations.
The argument was made that Gulf oil exporters -- with their relatively small populations -- could not economically absorb such windfalls given their level of development. The solution was to recycle these excess “petrodollars” by investing them in more developed economies. Using that rationale, the Gulf monarchies began a massive illicit transfer of oil revenues to safe havens. The primary beneficiaries were the United States and Great Britain. Of course, these huge capital transfers were made in the name of the ruling clans.
Outfits like the Carlyle Group -- provided professional management of Saudi assets -- which some have estimated to have reached a value of $900 billion. Incidentally, The Carlyle group just happens to employ three major players involved in the “Liberation of Kuwait” -- Bush the elder, James Baker and John Major. The $900 billion mentioned earlier only accounts for Saudi investments in America’s capital markets. It does not take into consideration the royal family’s considerable holdings in England, Europe and Asia. Perhaps John Major and Tony Blair can give approximate estimates of Saudi and Kuwaiti funds invested in Great Britain. Those figures might help explain why an oil-exporting nation like Britain also has ‘vital national interests’ in the Gulf.
The single best-kept financial secret in the world is the exact size of worldwide assets controlled by the Al Saud and Al Sabah clans. None of these Gulf leaders has ever had to explain to their subjects how exactly oil revenues are allocated. This wholesale confiscation and expatriation of national oil revenues is rarely a subject of debate in either the American or Arab media.
It is difficult to calculate how much money the Saudi royal clan skims from oil revenues before they reach the public purse. At current oil prices, revenues from Saudi crude should fetch around $180 billion this year. Yet, the government’s budget for 2005 is less than $80 billion. How can one account for the $100 billion difference. Is that the Royal family’s cut? One can never be certain because in the Kingdom of Oil -- such questions are considered subversive. They never get asked. And the ruling family reserves the right to decline answering such impertinent inquiries.
For all practical purposes, the public coffers in Saudi Arabia are also the family bank account of the Al Saud clan. Every member of the royal family -- estimated to number about 15,000 princes -- gets a monthly stipend in compensation for being a member of the Al Saud family. Do those stipends come out of the official national budget? Again, who knows?
Saudi Arabia exports around 10 million barrels a day and has a population of around 20 million. At $50 a barrel, per capita oil exports should be around $ 9,125 for every man, woman and child -- an excellent standard of living by world standards. And that amount does not reflect the substantial contribution of the private sector to the national economy. But, the citizens only see a fraction of their entitlements. There is simply no transparency in how oil revenues are allocated.
Unemployment in Saudi Arabia is at levels equivalent to American job-less rates during the Great Depression -- around 25%. With a relatively young population, an estimated half a million young Saudis enter the job market every year with diminishing prospects of gainful employment.
The vast majority of Saudi adults are perfectly aware that the ruling family systematically loots oil revenues. They know that a considerable portion of the proceeds from the sale of their non-renewable natural resources is expatriated to foreign shores -- mostly to American and British capital markets.
In broad daylight, the ruling Gulf monarchies openly engage in what can only be described as money laundering on an epic scale. The house of Al Saud makes Marcos seem like a petty thief. After all, this scam involves the illicit transfer of hundreds of billions of dollars. This money laundering operation is part of the reason we send our troops to kill and die in the region. Our policy makers have made a determination that protecting this illicit racket is in the national interests of the United States.
It should be noted that the Gulf monarchs were expatriating their fortunes before the United States got entangled in direct military intervention to “Liberate Kuwait.” Who can forget the sight of the Emir of Kuwait signing the initial down payment of $13 billion dollars in London while he was still in exile and his country was still occupied by the Iraqi army? He could do that -- because he already had a bank account in Great Britain.
Does this money-laundering racket contribute to our national economy? Sure it does. But, we can’t accurately determine exactly how much the American economy benefits -- because the size of the transfers are not part of the public record. After all, these are private transfers in the name of individual members of the royal clans.
But we should note that the Al Saud and Al Sabah clans do not donate their ill-gotten gains to the US Treasury or distribute it to American consumers. They use the money to buy tangible and intangible assets -- like real estate, stocks and corporate and government bonds. Technically, The Saudis and Kuwaitis are just regular foreign investors who put their money in America because it is a safe haven and because they expect to make a profit. It is always a good thing to have foreign investments pouring into the American capital market -- but at what price. If the cost of attracting these funds is to permanently station garrisons in the Gulf -- than just from a financial perspective, a case can be made that it is a losing proposition and does not serve the national interest.
Of course, certain economic interests like the Carlyle Group stand to lose plenty if their Saudi and Kuwaiti clients were to stop sending regular transfers of oil revenue receipts for “money management.” Cry me a river.
From a moral perspective, we stand accused of allowing the Saudi and Kuwaiti ruling families to economically rape their nations and stash their loot in America or Great Britain. That might bother some and not bother others. After all, it is the same exact service we were glad to provide for Marcos and Mobutu. The difference is that we never had to send young marines to Manila or Zaire to kill and die for this dubious privilege.
If regime change ever comes to Saudi Arabia -- the new governors are more than likely to file lawsuit to help track down and recover the assets of the Saudi clan. They can use the legal precedent set by the Philippines as a model and figure out how Manila got a hold of the funds expatriated by Marcos. This nightmare scenario might cause real concern among the power elite in Washington.
To determine if such a threat rises to the level of a national interest that warrants military intervention in the Gulf, we first need an approximate figure of the size of Saudi investments to do the math. In the event that we face such a crisis, the capital markets would no doubt react negatively -- at least initially. But we survived 9/11 and we survived Pearl Harbor and we survived Vietnam. The sheer size of the American economy leads me to believe that we can absorb the shock. It would take time to track down the funds and it would take time for the courts to make a final determination. In the meantime, the Saudi assets would be frozen. If it appears that a new regime in Saudi Arabia might be rational -- we could always try to convince them to withdraw the funds in an orderly manner.
In any event, if that is why we are over there -- we should at least talk about it frankly. And we should tell the grunts that their mission is to keep us in the good graces of Saudi investors.
The Link Between Trade Deficits and Oil Pricing
When it comes to the national interests, the most important part of our deal with the Saudis and Kuwaitis is their agreement to price and sell their oil in American dollars. If it were not for our strategic alliance with these Gulf despots, the United States would not have the luxury of running outrageous trade deficits.
Every year since 1976, the American economy has run record deficits in the balance of trade with the rest of the world. During the last decade (1995 –2004), the United States ran a cumulative trade deficit of three trillion dollars. The exact figure is $2,935 billion. That works out to roughly $10,000 for every man, woman and child.
The trade deficits just keep growing with no end in sight. Right wing economists have always dismissed alarm about the rising deficit by pointing to the size of the American economy -- which is currently about $11 trillion. The annual trade deficit was only $31 billion in 1991. In 1995, the trade deficit was $102 billion dollars -- still under 2% of GNP. By 2002, it was up to $ 435 billion -- around 4% of GNP. Last year, we ran a trade deficit of $617 billion -- 5.7% of GNP. And this year, the trade deficit is projected to grow to $715 billion. If we were a third world nation, we would be hauled into a bankruptcy court and the World Bank would show up at our front door with a mandatory five-year plan.
Consider the trade deficit figures for February 2005. In 28 days, Americans managed to import 161 billion dollars of goods and export only $100 billion. You don’t have to be an economist to figure out something is seriously out of whack. We managed to rack up a trade deficit of $61 billion in 28 days. You do the math. That works out to $2.17 billion a day -- or nearly 90 million dollars an hour. If you have normal sleep patterns -- eight hours a night -- the United States ran a $723 million deficit while you were sleeping. And it piled on another $100 million deficit while your were having breakfast and getting ready for work. Good morning, America. Are you ready for another 2.2 billion dollar spending spree?
The Dollar is Our Number One Export Commodity
To put things into focus, let’s begin by reducing February’s trade statistics to one single transaction. In February, the world sent us a fleet of ships loaded with all kinds of consumer goodies. After they unloaded -- they gave us a bill in the amount of $161 billion. We were obliged to settle the bill immediately. So, we gave them $100 billion dollars in military hardware, medicine and software and a box containing $61 billion in newly minted hundred dollar bills. On the surface, the transaction was a straightforward non-coercive business exchange.
We have been conducting business with the rest of the world in a similar fashion since 1976. In effect, we have been exporting hundreds of billions of dollars in American currency. The United States dollar is by far our single greatest export commodity. For some reason, the whole world has been more than happy to accept our green paper in exchange for real goods and services. What exactly is the economic environment that allows the United States to export so little and import so much?
Why Washington Doesn’t Worry About Trade Deficits
A trade deficit by its very definition is the measure of a country’s competitive strength or weakness. If you are importing more than you are exporting -- it means that the world finds your products inferior or expensive or both. Any casual stroll through almost any foreign capital reveals that American products are not on the shelves and American cars are not in the streets and the pedestrians are not wearing American textiles. Even if some products are sold under American labels -- chances are some Asian company manufactured them under license. You might find a few Burger King franchises but the hamburgers and fries are cooked and served by their workers -- foreign labor. And a visitor to a Wal-Mart in America will also discover that most of the products on the shelves are imported -- also manufactured by foreign labor.
We have huge trade deficits because we want their stuff and they don’t want what we produce. Mainly because our products require high priced labor content and American workers are very expensive by world standards. Most of them actually expect to work for a decent living wage.
So, why then is the United States government on a crusade to promote the virtues of free trade when we have managed to pile up consecutive uninterrupted trade deficits since 1976. Politicians are constantly promising that innovation and the sheer talent and productivity of the American worker will ultimately prevail and make our products more competitive. In the meantime, we are closing our factories while new ones are being constructed at a frantic pace in China and India. Even the technology sector is off-shoring American jobs to Bangalore.
Alarmists were voicing concern about the exponential growth in the trade deficit when we started piling up $100 billion annual trade deficits in the early ‘90s. But nothing happened. We now manage to work up a $100 billion trade deficit in six weeks. Still, nothing happens.
So, why are we so hooked on free trade when our products can’t compete over here or over there? Because our government’s only concern is a rise in total international trade volumes that will create ever increasing demand for the world’s favorite means of exchange -- the almighty dollar.
The United States is the only government in the world with the exclusive right to print and distribute American legal tender. The US mint is the biggest most important single industrial enterprise in the history of the world -- cranking out a commodity that fetches nearly $2 billion dollars a day in almost pure profit. The trade policy of the United States is primarily geared to making an international market for our number one export commodity -- the American dollar.
Why Does the World Lust for the Dollar?
Until 1971, any foreigner could show up at the US treasury and exchange his dollars for gold at a fixed rate of exchange -- 32 dollars for one ounce of gold. Nixon put an end to the gold standard. Very few foreigners actually used the privilege -- but they slept better knowing that they could instantly convert American paper currency for a tangible amount of gold. Until the early ‘70s, the world craved dollars for a more sensible reason. They could be exchanged for American manufactured goods. Back then, foreign demand for American goods and services was high enough to generate trade surpluses.
Now, thanks to the Saudis and Kuwaitis, the world has additional reasons to crave American currency. Oil is priced in dollars and sold in dollars. Countries like China and Japan need American dollars not only to buy American products, but also to buy Gulf oil. The Saudis then take a healthy portion of their dollar revenues and invest them right back in the United States -- with the able assistance of firms like the Carlyle group.
When a normal country buys more from its trading partners than it sells -- it usually ends up making up the difference by selling real assets like banana plantations to foreign interests. Or it can issue government or corporate bonds -- in effect borrowing the money from foreign investors. Some of the currency we export eventually gets invested in American stocks, bonds and real estate. In fact, foreigners end up buying a considerable portion of US government bonds, which ironically helps finance the domestic budget deficits and keeps interest rates low. Given America’s low savings rate, without huge trade deficits -- we might have a harder time financing our budget deficits. This might seem like a good thing, until you stop to consider that we are passing trillions of dollars in debts to future generations. And those who clip the bond coupons will be foreigners -- like Japanese and German pension funds and the Al Saud and Al Sabah clans.
The United States is not just another normal country. It is an imperial power that controls vast reserves of Gulf oil and leverages its control to assure a steady demand for its chief export commodity -- currency. Many countries are obliged to retain their reserves in dollars to insure their ability to import oil. That’s the reason they are called petrodollars. Those dollars just drift around off shore and oil importing countries are obliged to chase them to assure future oil supplies. So, when Australia sells sheep to China, it asks for dollars. And when China sells textiles to Argentina it also demands dollars. Because eventually, they will all need American dollars to buy oil.
According to Swetha Narayanaswamy, an Indian economist, “More than four-fifths of all foreign exchange transactions and half of all the world exports are denominated in dollars, and U.S. currency accounts for about two-thirds of all official exchange reserves. The fact that billions of dollars worth of oil is priced in dollars ensures the world domination of the dollar.” American hegemony over the Gulf region -- guarantees that oil is sold in dollars -- which creates “dollar hegemony” -- an economic environment that compels other countries around the world to maintain huge dollar reserves and to trade in dollars -- even when they have not intention of buying American made products.
This phenomenon might explain why the US government has not made a big deal about the extraordinary leap in the price of oil -- which is 400% higher today than it was at the bottom of the market in 1998. These price increases have a beneficial side because they create a greater demand for petrodollars at a time when America’s trade deficits are also sky rocketing.
What if the World Purchased Oil with Other Currencies?
The link between American trade deficits and our imperial project in the Gulf might seem over blown to some. But consider the following scenario. The House of Saud falls and is replaced by a regime of pan-Arab nationalists. The new rulers have no interest in smuggling oil revenues abroad. They decide to use the proceeds to build their own economies and improve the standard of living of the average citizen. Having no particular preference for the dollar, they start accepting other currencies in exchange for their oil. They continue to accept dollars -- but only the amounts they need to buy American goods and services. But they have no problem selling their oil for Yen or Euros or Australian dollars.
From Petrodollars to Petrodinars
Without a doubt, the first thing the new rulers in the Arabian Peninsula would do is changing the country’s name. May I suggest the Republic of South Arabia? The second thing they would do is alter the currency to reflect the country’s new identity.
The new governors might then put together a team of American educated economists to figure out how the United States used Gulf oil to create demand for the US dollar? They would quickly discover that the black gold under their native soil was the functional equivalent of the yellow gold in Fort Knox -- which was used to back the dollar until 1971. In effect, the American dollar has gone from a yellow gold standard to a black gold standard. A light goes off. What if they used their black gold to back up their own native currency? They decide to call it the petrodinar. They set a permanent fixed price of 30 petrodinars for a barrel of oil.
Initially, the new republic could issue enough petrodinars to cover five years of oil supplies at current rates of production. Eventually, the amount of petrodinars that can be issued would be tied to an acceptable and rational percentage of oil reserves. An independent international committee of geologists would monitor oil reserves and production levels to prevent the oil-exporting republic from exaggerating its reserves.
The Republic of South Arabia would allow the petrodinar to float freely against other currencies. It would continue to accept any hard currency in exchange for oil. On any given day, if a barrel of oil is 60 US dollars -- it will still be 30 petrodinars -- which would make the petrodinar worth two dollars. If a barrel of oil costs 15 sterling -- a petrodinar would be worth 50 pence. If the market price for a barrel of oil is 90 Euros - a petrodinar could be exchanged for three Euros. Before long, oil-importing countries would find themselves accumulating petrodinars instead of dollars to finance future oil supplies. Instead of speculating on NYMEX oil futures in New York -- investors and speculators would trade petrodinar currency futures in Beirut.
With the emergence of a petrodinar, the Gulf region could not only export oil -- they would also have the economic advantage of exporting currency.
This scenario would permanently remove any incentive for the United States to intervene in the affairs of Gulf oil producers. The most important rationale for the American imperial project would go up in smoke.
The Radical Concept of Supporting the Dollar with Gulf Crude
There is nothing radical about the concept of a petrodinar. The only rational reason to hold the currency of another country is if you have plans to purchase goods and services produced by that country. It makes sense to hold Japanese yen if you want to buy a Toyota. It is rational to hold Australian dollars if you intend to purchase sheep or kangaroos from a trader in Sydney. The only sensible reason anyone should hold American dollars is to buy American made products.
If you want a really radical concept -- take a good look at the American imperial project in the Gulf. Approximately two millions Arabs, Iranians and Kurds met an early and violent death as a result of direct and indirect American intervention in the Gulf. Over five thousand American soldiers and civilians paid the ultimate price in the killing fields of Iraq and the World Trade Center. All of them perished to make a global market for US legal tender and to guarantee that oil revenues eventually made their way to New York and London capital markets.
What if a soldier’s tombstone in Arlington read “HE GAVE HIS LIFE SO AMERICA COULD BE FREE (to export petrodollars)?” How many mothers would allow their sons to fight, kill or die for the fine print? How many working class American kids would volunteer for an army that protects their country’s currency instead of their country’s borders?
In the process of exporting our currency, the American government has pursued a “divide and conquer” strategy that has incited Arabs against Kurds and Iranians against Arabs. In Iraq, Shia and Sunni Muslims are now at each other’s throats. Despots like Saddam and the Shah have been nurtured and America now flirts with theocrats and fundamentalists in the “New Iraq.” As a direct result of our radical “petrodollar” policy, we have made lethal enemies where we should only have trading partners. Meanwhile, The Saudi royal family -- perhaps the richest family in human history -- gets richer while the whole region is pauperized.
Is This Gulf Racket Still a Profitable Venture?
Needless to say, The United States does not indulge in imperial projects simply because it has the power to establish and maintain off shore military bases. During the cold war, most military projects were directed at confronting real or perceived Soviet threats in Europe and Asia.
Until recently, direct military involvement in the Gulf was a relatively cost free enterprise and real benefits accrued to the American economy and the individual consumer. It was a nasty and bloody business with uncounted native victims -- but it made money. In the last decade, it allowed us the incredible luxury of exporting three thousand billion dollars of currency. A good portion of that money was “repatriated” in the form of Saudi and Kuwaiti investments in American capital markets. But a vast pool of so-called petrodollars is still floating around the world --hoarded in the reserve accounts of foreign nations who know that the dollar is the only currency that can buy Gulf oil.
As things now stand, our governors continue to behave as if our imperial show of force in the Gulf continues to serve our national interests. From a strictly imperial point of view, they are simply wrong. Our tragic involvement in the Gulf might have been a profitable venture for the last seven decades -- albeit at the expense of the native population. But now it is a lose-lose proposition.
A cost benefit analysis of the American imperial project in the Gulf should convince even the most jingoistic American that this is no longer a profitable project. While the “liberation” of Kuwait was basically a cost free proposition, our current entanglement in the Iraq has already cost $ 200 billion. Add to that the cost of Homeland Security and the economic losses sustained from the 9/11 attacks. And what is the dollar value of an American or an Iraqi life.
It should now be obvious to anyone familiar with simple arithmetic, that the overhead for our currency-exporting scam has been vastly underestimated. So, we need our governors to sit down with a pencil and paper and recalculate if the exponential increase in the costs of this imperial venture can still justify our military intervention in the region.
Things will only get worst if they procrastinate. Sooner or later, the world will expect us to increase our exports and provide real goods and services in exchange for the $3 billion in foreign goods that we consume every day. The illusion that we can print hundreds of billions of dollars, ship them abroad and only incur a printing charge is about to go up in smoke. We are about to discover that petrodollars can actually be converted to regular dollars -- in the sense that they can be considered a means of exchange to buy American goods and services -- not Gulf oil.
One of the reasons our currency is on skid row is that the world is saturated with petrodollars as a result of our exploding trade deficits. Even at $50/ barrel, total Saudi oil exports will fetch under $200 billion dollars in 2005 -- about the same amount of money we have already spent on the Iraq war. Our projected $717 billion deficit -- not to mention the billions already hoarded in reserve accounts -- can no longer be soaked up by Gulf oil. When the foreign holders of all those petrodollars realize that American currency can only buy American products -- the dollar will suffer further devaluation.
If petrodollars come back to our shores and start chasing domestic products -- inflation will soar. As the dollar declines, it will also make imports more expensive. In classical economic theory, such a development would cause American consumers to switch to domestic products. They will be in for a rude surprise -- because we have closed down our manufacturing plants and shipped the jobs abroad -- laying off three million factory workers in the last four years.
Sooner or later, we will have to pay the piper. If doing so seems expensive today, it will only become a heavier burden next year. This much is certain -- our imperial project in the Gulf will never again generate profits -- now that our overhead has gone through the roof.
This War Does Not Add Up in Dollars or Sense
There was a time when America intervened directly in Asia and Latin America to secure economic advantages. Gun Boat diplomacy was a bread and butter policy. It made dollars and imperial sense. We don’t intervene directly in those regions anymore because risks are far higher than any potential rewards.
It is time to challenge the war party to produce a current account “profit/loss” statement to justify our continued presence in the Gulf region. If they refuse, the anti-war movement should sharpen its pencils, take a good look at the numbers and prove that this imperial venture no longer serves the national interest. The special interests and narrow constituencies need to be held accountable for the accumulating losses.
It is never worthwhile to appeal to the common decency of the architects of our foreign policy. Decency is not an imperial value. The blood soaked killing fields of the Middle East will never cost them a minute of sleep. What we need now is a little old fashioned MBA accounting. What can be further gained and at what cost. If the imperial project in the Gulf is no longer profitable -- we should just close shop and let the Al Saud clan hire another group of mercenaries to protect their oil plantations.
It is easy enough to make a moral case against a disastrous foreign policy that has cost so much in American and Middle Eastern blood and no small amount of treasure. Still, imperial habits are hard to break. It took the British Empire fifty years to figure out that Hobson was right.
At some point, intervention and empire cease to be economically rational, even from the perspective of die-hard cold-blooded imperialists. Eventually, they degenerate into a costly tradition. We conquer because we can. We continue to fight a war because we haven’t finished it. It was Napoleon who once observed that, “Great empires die of indigestion.” We have reached that point in the Gulf. It’s time to pack up and leave. The sooner we do it, the cheaper it will be.
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